Seeking Help from Obama's Home Loan Modification Plan

President Obama knows that the current economic crisis that we are facing has been crippling for many homeowners. Foreclosures are at an all-time high. House prices have plummeted because a foreclosed home in the neighborhood decreases the price of surrounding houses by as much as 9%. House prices have dropped so dramatically that many people now owe more on their home than it is even worth. Because of these problems, the administration has introduced Obama's home loan modification plan.

The plan was announced in February of 2009 and implemented in March 2009. One arm of the plan is designed to help homeowners at risk for foreclosure to refinance. Rapidly falling house prices mean that people often no longer have 20% equity in their homes like they used to, and so they are ineligible for traditional refinancing. The President plans to make refinancing easier so that people can better manage their monthly payments and avoid foreclosure.

The home loan modification plan aims to keep 5 million people in their houses by offering a set of guidelines and rules about modifying mortgage loans. Mortgage lenders will get incentives from the government to modify the loans of at-risk homeowners and work with them to find workable solutions to lower their monthly payments.

Homeowners who use loan modification will get their mortgages are restructured by the lenders. Interest rates on a modified loan must be lowered in order to put the monthly payment at 38% of a borrower's gross monthly income. Lenders are given further incentives to decrease the interest amount even more, getting a matching dollar amount from the Homeowner Stability Initiative to lower their interest rates to 31% of a borrower's total monthly gross income. In these trying times where layoffs have often pushed a person's monthly mortgage payment to 40% or even 50% of their gross monthly earnings, a loan modification is absolutely necessary for people who need to remain in their homes.

The U.S. Treasury has implemented an exact series of steps that a lending institution must complete when modifying troubled loans. This clear set of guidelines should streamline the process and avoid more foreclosures than past initiatives have. In the past loans have been modified by tacking on missed payments to the principal of the loan, which did nothing to lower monthly payments. President Obama's home loan modification plan addresses the issues real people face when trying to pay their bills each month.

Lindsy Emery, "Obama's Home Loan Modification Plan", Loan Modification Guide and Resource